IS IT A BIRD? IS IT A PLANE? NO! IT'S SUPERANNUATION…
Gone r the days where you have 2 leave ur Super sitting in an account until ur old enough 2 use it!
Legislation in Australia allows u 2 use the money in ur super fund as a deposit on an investment property, thereby borrowing the balance.
You ll require a self managed super fund (smsf). So, why & how is it done & what r the benefits?
So, why would u buy a property through ur super?.
Below you ll find some great reasons why…
1. Significantly lower tax! Only 10% capital gains tax (if you hold the property for more then 12 months) and sell before your retirement, zero capital gains tax if you sell afterwards. Also a maximum of 15% contributions tax before, and none after.
2. It s money that u previously didn t have access to, and u may prefer 2 take control of ur own money rather than allow someone else to do it for u.
3. Typically the investment manager of your super fund is taking out fees for their services irrespectve of investment market conditions. It can be a bit like trying to fill a bucket that has a hole in the bottom. Having your own SMSF puts the power back in ur pocket.
4. If anyone is watching the news, we sure don t think the government is going to be in a position to look after u when u retire. U need something that s a little better than even 200?000 if u wanted to retire at 60 & plan to live for another 20 years… on ten grand a year. U?d either have to keep working, or starve!
5. If u know the right people, it s not as hard as it looks.
& some more info… Australians began increasing their contributions to their superannuation funds around 1986, when it became a requirement that employers also contribute into their employee s funds. Many Australians also rely on investments in property as a way to prepare for retirement through profits generated in rental income or negative gearing legislation. If property and superannuation accounts are the most common methods of saving for retirement, it seems like combining the two strategies is a good idea.
Before 2007, it was not generally not possible to borrow through your SMSF to invest in property. When changes were made to the legislation surrounding superannuation funds, property investment was included as an option in order to help diversify the risks of investors. While it is now possible to buy property through ur super, it s recommended to consult with an expert to find out whether the option is a good decision for ur own situation.
Here s some info on using SMSF to Purchase Investment Property Conditions
The complete list of conditions and requirements are found in the Superannuation Industry (Supervision) Act 1993 (SIS Act) under Section 67, but these conditions basically state:
* borrower s funds must be used to purchase an asset (like real estate)
* the asset must be held in trust for the self-managed fund by another entity (the property trustee)
* SMSF has legal ownership of asset in the event of a loan default the lenders only recourse is to the proeprty itself; not any other SMSF assets(other funds in the SMSF are safe)
* the superannuation fund becomes the owner of the property; whether residential, commercial, or holiday unit
* you cannot live in or rent out i.e. holiday home/unit, a property purchased through your super as your primary residence
* property can be transferred into your own name after retirement; and at that time can make the property your primary residence
& some info on making the purchase
Buying property through your super is similar to buying investment property on your own. You select the property you wish to buy, and then your SMSF must satisfy loans requirements as they are indicated by the loan provider. It is strongly recommended that you establish your SMSF and loan approval prior to negotiating, a loan using your SMSF will usually take up to 4 weeks for approval.
The requirements and conditions for properties purchased through super funds are slightly different than what they are for a person making an investment in property, for example:
* maximum loan to value ratios for properties purchased through your SMSF is usually lower than those offered to individual borrowers (sometimes as much as 70%)
* there is a 30 year maximum loan term for residential property
* there is a 25 maximum loan term for commercial property
* some restrictions may apply on the property locations
All deposits, balance of purchase price and associated fees are paid for out of your superannuation fund, as are the property management expenses. Council rates, home loan repayments and fees, property repairs and land tax are all paid from the SMSF.
Because the property is owned by the SMSF, it receives the proceeds from tenants rent payments or any other income the property generates.
At any time, the SMSF can pay extra onto an investment property mortgage or even pay it off completely, depending on the lenders terms of the loan. When a mortgage has been paid, the title and property can then be transferred or the property trustee can remain the registered proprietor.
If you would like to purchase property through your super, it s advisable that you enlist the help of a professional who can help you set up the trust correctly, structure the loan and remain in compliance of the guidelines and tax implications of doing so.
Want more info? We can recommend G P Kearney and Co Pty Ltd. Call them on 9971 5975.
Ready to buy? Call The Novak Agency on 8978 6888 or 1300 4 NOVAK 24/7 – we never sleep